Friday, August 18, 2017

Comparative advertising using P's logo is nominative fair use

SolarEdge Technologies Inc. v. Enphase Energy, Inc., 2017 WL 3453378 17-cv-04047 (N.D. Cal. Aug. 11, 2017)

SolarEdge sued Enphase, a competitor in the business of selling electronic components for solar panels (aka PV modules), for false advertising and trademark infringement.  SolarEdge’s primary products are components involved in the “optimization of energy generated from solar panels.”  PV modules convert solar energy to direct current, which then must be converted to alternating current to be delivered through the power grid.  An “inverter” performs this conversion. Traditionally, competitors in the industry have used multiple solar panels connected to one or a small number of centralized inverters. SolarEdge’s “power optimizers” are attached to each individual solar panel and then connected to a simplified centralized inverter to aid in a more efficient conversion from DC to AC. This practice is referred to as “module-level power electronics” (MLPEs). Enphase instead uses “microinverter” technology, which attaches a “small inverter at each solar panel,” also an MLPE.

MLPEs can come in two varieties: an embedded MLPE is installed into the solar panel before it leaves the factory, thereby reducing the time required to install a PV system at an end user’s location.  Non-embedded MLPEs are installed on-site.  SolarEdge alleged that it produced embedded power optimizers, but that it was still known “primarily for its non-embedded optimizers, as embedded technology is still not widely used in the PV industry.”

Enphase announced that it would be offering an embedded version of its microinverters, the Enphase AC Module. Its ad campaign included a video, “Enphase Energized AC Module vs. String+Optimizers,”  purporting “to depict a time-compressed video comparison between the installation times for PV systems using comparable SolarEdge and Enphase products.” On Enphase’s website, the video appeared with the text “Stop wasting time installing optimizers—When compared to optimizers, the Enphase AC Module cuts rooftop installation time in half. See for yourself.” The video also featured a testimonial from an installer attesting to the ease of installing an AC Module panel as compared to a non-embedded SolarEdge power optimizer. The video ended displaying the conclusion that the “Enphase Energized AC Module cuts installation time in half.” SolarEdge alleged that the comparison was false because it tested the AC Module against SolarEdge’s non-embedded optimizer, rather than the embedded version. The video also included SolarEdge’s stylized logo, displayed throughout the video.

This motion for preliminary injunction hinged on whether the claims at issue were literally false, given that the heading and the introductory page of the video purports to compare the AC Module against “string+optimizers” generally, and implied that SolarEdge didn’t produce an embedded version. Enphase argued that the marketing campaign was directed at experienced installers, who would immediately recognize the specifics of the comparison; also, other statements on the website, such as “Stop wasting time installing optimizers,” indicated no literal falsity because that statement wouldn’t make sense if Enphase were comparing its embedded technology against embedded optimizers. Also, nothing in the video suggested that Enphase is the only producer of embedded MLPE technology.  On this record, the court did not find likely success on the merits.

Trademark infringement: The court applied nominative fair use and (rightly) found in favor of Enphase, despite the use of SolarEdge’s stylized logo.  Under Ninth Circuit precedent (to the extent it can be discerned), if a nominative use fails to satisfy all three factors, “the district court may order defendants to modify their use of the mark so that all three factors are satisfied,” but “it may not enjoin nominative use of the mark altogether.”  In a useful reformulation, the court here said: “while satisfying all the factors necessarily negates trademark infringement liability, the failure to satisfy one of the factors does not establish liability in and of itself.”  So NFU is only a replacement for the multifactor test if the defendant succeeds; this is an important clarification of Judge Kozinski’s muddling of the issue in Tabari.

This ues in a comparative ad satisfied all three factors, and regardless SolarEdge didn’t make any arguments about how confusion over sponsorship or endorsement by SolarEdge.

The court briefly addressed irreparable harm as well.  SolarEdge argued that it would suffer lost sales if Enphase if the ad could be shown at an upcoming trade show, one of the largest in the industry.  It also argued that Enphase was unlikely to be able to pay damages here, given that it had faced significant financial difficulties of late.  The court found “only a bare, threshold showing” on irreparable harm—statements from a senior executive could be evidence of irreparable harm, but the record lacked data supporting her conclusions. Also, Enphase’s modification of the ads to clarify that the comparison was to non-embedded, standalone optimizer systems minimized the likelihood of irreparable harm, as did the court’s adoption of a fast schedule for further proceedings on the case.

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